As a Certified Public Accountant (CPA) specializing in non-profit organizations, I understand the critical role that investment policies play in the financial health and sustainability of these entities. Effective investment policies are not just about generating income; they are about stewarding resources responsibly to support and advance the organization’s mission. In this blog, we’ll delve into the key aspects of creating and implementing investment policies for nonprofits.

The Importance of Investment Policies in Nonprofits

Investment policies serve as a roadmap for how a non-profit manages its investable assets. These policies are crucial for several reasons:

  • Risk Management: They help in managing the risks associated with investments.
  • Accountability: They provide a framework for accountability and decision-making.
  • Compliance: They ensure compliance with legal and fiduciary responsibilities.
  • Alignment with Mission: They ensure that investment decisions align with the organization’s mission and values.

Key Components of an Effective Investment Policy

1. Investment Objectives

Clearly define the investment objectives of your non-profit. These could range from capital preservation and income generation to growth and liquidity needs. The objectives should align with the organization’s overall financial goals and mission.

2. Risk Tolerance

Assess and articulate the organization’s risk tolerance. This involves understanding the level of market volatility the organization can withstand and how this impacts its ability to achieve its mission.

3. Asset Allocation

Determine an appropriate asset allocation strategy. This strategy should balance the risk and return objectives of the organization, considering different asset classes like stocks, bonds, and alternative investments.

4. Investment Time Horizon

Consider the investment time horizon, which is the expected time frame for holding the investments. Nonprofits with longer time horizons may be able to take on more risk for potentially higher returns.

5. Spending Policy

Develop a spending policy that outlines how much of the investment income can be spent annually. This policy is crucial for maintaining the long-term viability of the investment portfolio.

6. Social Responsibility

For many non-profits, incorporating socially responsible investing criteria that align with their mission and values is important. This can include screening out investments in industries that contradict the organization’s goals.

7. Monitoring and Review

Establish procedures for regular monitoring and review of the investment portfolio. This includes assessing performance, reviewing investment managers, and ensuring adherence to the investment policy.

Strategies for Implementing Investment Policies

1. Involve the Board

The board of directors should be involved in developing and approving the investment policy. Their oversight is crucial for ensuring that the policy aligns with the organization’s mission and governance structure.

2. Seek Professional Advice

Consider consulting with investment professionals or financial advisors who understand non-profit investment management. Their expertise can be invaluable in developing and implementing an effective policy.

3. Educate Stakeholders

Educate your board members, staff, and other stakeholders about the investment policy and its implications. Understanding the policy helps in making informed decisions and providing proper oversight.

4. Transparency and Communication

Maintain transparency in your investment activities. Regularly communicate with stakeholders about the performance of the investments and how they are supporting the organization’s mission.

5. Review and Adapt

Regularly review and update the investment policy to reflect changes in the financial markets, the organization’s financial position, and its goals. An adaptable policy is key to responding to changing circumstances.

The Role of a CPA in Nonprofit Investment Policies

As a CPA specializing in nonprofits, I can assist in:

  • Developing investment policy statements.
  • Advising on risk management and asset allocation.
  • Ensuring compliance with financial regulations and standards.
  • Providing insights on financial reporting and transparency related to investments.

Conclusion

Investment policies are a vital component of a nonprofit’s financial strategy. By carefully crafting and implementing these policies, non-profits can ensure that their investments are managed responsibly, effectively, and in alignment with their mission.

Enhance Your Nonprofit’s Financial Strategy

To further explore effective financial strategies for your non-profit, including investment policy development, I invite you to download my free e-book, “7 Mistakes Nonprofits Make in Financial Management.” This resource offers valuable insights and practical tips for managing your nonprofit’s finances, including investment strategies. Download your free copy here and take a significant step towards strengthening your organization’s financial health.